A generation ago, many wondered how many years would pass before American dominance and, by extension, the clout of Western-led financial institutions like the IMF and World Bank faced a serious challenge. So far, no single rival has proved its staying power. For better and for worse, the IMF and World Bank remain core components of international politics and development. And that's what makes collective action among the BRICS-Brazil, Russia, India, China, and South Africa-so intriguing. The BRICS carry considerable weight as models for the next wave of developing countries-particularly following an American-made financial crisis and ongoing turmoil in the Europe.
It's no surprise then that plans announced last month to create a BRICS development bank have generated so much buzz. In particular, the ability of leading emerging market governments to finance big infrastructure construction projects across the developing world has interesting potential implications.
Yet, for many of the same reasons that the BRICS have so far struggled to institutionalize a working partnership in other areas, this bank will take longer to build than its architects think and will never realize the grand ambitions of its most forceful advocates.
It's no secret that Brazil, Russia, India, China, and South Africa are home to quite different political and economic systems and face different sorts of challenges. Less well understood is the diversity of their interests in creating a bank. Questions of seed money, oversight, purpose, and where the bank might be headquartered are certain to arouse controversy.
But the larger problem is that all the BRICS except China are grappling with sharper-than-expected economic slowdowns-and Brazil, India, South Africa, and Russia are all looking to spend their revenue on infrastructure projects at home to help bolster growth. For the moment, none of them can afford to invest substantial sums to build someone else's roads, bridges, and ports.
These governments face a choice. They can contribute to a BRICS bank funded in equal (modest) parts by each member and lacks the capital to accomplish much. Or they can lend their names to a much-better funded institution that is thoroughly dominated by China.
Yes, Brazil's government is interested in promoting a South-South development strategy, but the Dilma Rousseff administration is now focused mainly on reviving domestic growth following a significant slowdown last year. Its strategy rests in part on using state development bank BNDES to fund ambitious infrastructure projects inside Brazil. If the BRICS bank can be used to finance projects outside Brazil to which BNDES is already committed, it might be useful, but don't expect the Rousseff administration to offer significant new cash commitments toward these projects.
Russia's government, also faced with sluggish growth, will talk up the need for a counterweight to U.S.- and European-dominated institutions, but tepid pledges of support for the bank from Russia's finance minister and the recent tragicomedy in Cyprus make clear that Moscow is not ready to finance its bid for greater international prestige with substantial sums of cash.
Political officials in India, where national elections loom next year, are too preoccupied with a steady stream of domestic troubles to devote much capital to a BRICS development bank, and the government remains deeply ambivalent about its often troubled relations with fast-expanding China. That's in part why India's finance minister has said that the BRICS bank will complement, not challenge, existing international lending institutions.
Then there is South Africa, a country with a growing middle class but chronic high unemployment and an economy the size of China's sixth largest province. The ruling African National Congress sees obvious value in deepening trade and investment relations with China, but its greatest near-term contribution to a BRICS development bank will probably be limited mainly to providing its headquarters a home.
Finally, the bank faces obstacles even within China, the one country than can afford to give it heft. China already has a development bank. It's the most powerful financial institution in the country, one that answers only to the State Council, giving it the status almost of a government ministry. In fact, though the China Development Bank and the China Export-Import Bank may lack the perceived legitimacy of multinational institutions, they don't lack for borrowers. Together, they already lend more to developing countries and companies -- more than $100 billion per year -- than the IMF and World Bank do, extending China's strategic influence throughout Africa and Latin America, in particular.
Why share credit and benefit for these efforts with the other BRICS, especially when the rest have so much less to contribute? And why give others a say in where Chinese funds are invested?
All five of these governments have an interest in choreographed displays of unity and rhetorical challenges to U.S. power. But like so many other aspects of BRICS cooperation, there is less to this bank than meets the eye.
Willis Sparks is director in Eurasia Group's global macro practice.
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By Ian Bremmer
A few days ago, I took a quick, informal survey around Eurasia Group on power and global politics. The question: Who are the world's most powerful people? We're defining power as "a measure of an individual's ability to (singlehandedly) bring about change that significantly affects the lives and fortunes of large numbers of people."
Here's what we came up with:
1. Nobody -- In a G-Zero world, everyone is waiting for someone else to shoulder responsibility for the world's toughest and most dangerous challenges. The leaders you'll see named further down this list are preoccupied with local and regional problems and don't have the interest and leverage needed to take on a growing list of transnational problems.
2. Vladimir Putin -- In Russia's personalized system, this is still the person who counts. He isn't as popular as he used to be, and his country has no Soviet-scale clout or influence, but no one on the planet has consolidated more domestic and regional power than Putin.
3. Ben Bernanke -- The world's largest economy is still struggling to find its footing. To help, no one has more levers to pull and buttons to push. The world needs the U.S. economy back on its feet, and Bernanke has more direct influence than anyone else on when and how that happens.
4. Angela Merkel -- For the moment, her commitments are the glue that binds Europe. Merkel's ability to bankroll Europe's emergency funds, win concessions from the governments of cash-strapped peripherals, and maintain solid popularity at home continues to be a remarkable political and policy achievement.
5. Barack Obama -- Even at a time when Washington is focused almost entirely on Washington, the elected leader of the world's most powerful and influential country carries a lot of water. The Obama administration will watch the eurozone from the sidelines and keep commitments in the Middle East to a minimum, but America will continue to broaden and deepen security and commercial relationships in East Asia, and Obama's decisions on how far and how fast to move will be crucial.
6. Mario Draghi -- Europe's backstop. Europe's Central Bank has kept the continent's blood flowing at a crucial moment in its history, and his work is far from done.
7. Xi Jinping -- China's forward progress is the world's most important variable, and Xi Jinping is now the man behind the wheel. Over the next decade, economic and political reforms will be needed to keep China on track, and Xi will make some difficult (and profoundly important) decisions.
8 (tie). Ayatollah Khamenei -- The supreme spiritual and political authority in a country at the heart of a volatile region. Halfway through 2013, Ahmadinejad will give way to a new president, but it is still Khamenei who will decide how the international fight over Iran's nuclear program plays out -- and what the future holds for the Islamic Republic.
8 (tie). Christine Lagarde -- The world's fire marshal. Here is that rare leader whose contribution will be crucial in multiple regions at once. But nowhere will the IMF's work be more important than in keeping Europe on track.
10. King Abdullah Bin Abd al-Aziz -- King of a kingdom with a unique power to move markets. The Saudi monarch is not in the best of health, but the choices he makes in determining who lead the world's hydrocarbon powerhouse into the next generation will help shape the entire global economy for many years to come.
What do you think?
Ian Bremmer is president of Eurasia Group.
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By Stephanie Haffner
Since the start of Europe's sovereign debt crisis, tension has risen in the eurozone as a result of the growing economic divide between the group's northern and southern members. The response to the debt crisis was an ugly trade: Northern countries financed southern debts, but in turn imposed harsh austerity and economic reforms. The policies, however, have triggered ongoing protests that could morph into rising resentment from populations in southern EU member states, and extremism.
The belief in Berlin, Helsinki, and other northern European capitals is that austerity will eventually lead to competitiveness, fiscal sustainability, and growth for southern economies as well as the EU as a whole. So far these hopes remain unfulfilled. In fact, continued austerity will spur increasing resentment and a growing divide that could boost the popularity of extremist parties and threaten the European project. This dynamic will be helped along by a looming identity crisis for mainstream political parties in Europe's southern states, where distinctions between the left and right have begun to blur as sovereignty is further undermined and spending cuts drive domestic policies.
Assuming responsibility for southern debt has allowed Europe's northern countries to essentially take control of fiscal policy throughout the EU. This result has eroded the sovereignty of southern European countries, and that process will be further exacerbated by increased policy centralization at the EU level and the move toward fiscal mutualization. As the eurozone's monetary union is strengthened, fiscal instruments (such as Eurobonds/bills) that rely on pooling fiscal risk with greater burden-sharing could end up being exchanged for even more centralized control of economic policy. And new EU legislation, such as the so called two-pack and six-pack, which give national budgetary oversight power to the European Commission, will permanently lock in austerity
Centralized policymaking at the EU level will further exacerbate the political imbalances between the EU's northern and southern members. The northern states' growing role as the policymakers of the EU means that the south will lose the ability to significantly influence EU-level policies. The traditional democratic deficit that exists between the European Parliament and European citizens is thereby transformed into a deficit between southern European citizens and northern European governments, which is arguably a far more critical divide.
But there is a way to avoid such a mess. Economic integration is clearly necessary to resolve the crisis, but politicians are lagging in their efforts to present a long-term vision for Europe's political and economic future as a union. Policymakers should consider shifting their narrative from one that emphasizes oppressive austerity to one that highlights the importance of solidarity and political integration. This goal may require a new treaty to address the lack of political representation and democratic accountability that has come to characterize much of the current response to the crisis. But the failure to address these important issues will not only diminish the voice of southern Europe and its citizens, but could also heighten the risk of a breakdown in the European experiment.
Stephanie Haffner is a researcher with Eurasia Group's Europe practice.
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By Carroll Colley
While Russia will enter the WTO in late August, U.S. industry will be left on the sidelines until Congress removes the Cold War-era impediment to greater trade between the former foes. But it's a safe bet that Congress won't graduate Russia from the Jackson-Vanik amendment, which is necessary to grant permanent normal trade relations to Russia and take advantage of its accession to the WTO, before the November election. The reason? Russia is perpetually steeped in controversy, and U.S.-Russia relations have become a campaign issue in the race between Republican Mitt Romney and President Barack Obama. U.S. industry likely won't be able to take advantage of greater market access in Russia until the lame-duck session at the end of the year, and possibly later.
The White House is much more focused on November 6 (Election Day) than August 23 (the approximate date of Russia's WTO entry). Only after repeated requests from Republican lawmakers for senior level officials to testify on the Hill -- widely viewed as a Republican maneuver to force the administration to speak on the record about its Russian policy -- did the administration relent by sending the duo of Deputy Secretary of State William Burns and U.S. Trade Representative Ron Kirk to testify before the House Ways and Means Committee and the Senate Finance Committee. The White House calculates that a "yes" vote on graduating Russia from Jackson-Vanik (a 1974 provision that ties trade relations to freedom of emigration and other human rights considerations) would have little electoral upside, and might even harm Obama before the election.
Obama's meeting on June 18 with President Vladimir Putin on the margins of the G20 in Los Cabos seemingly failed to produce a breakthrough on Syrian policy. Headlines about ongoing arms shipments bound for Syria and the potential for continued Russian intransigence at the U.N. Security Council also represent potential political liabilities during the election home stretch, not to mention a host of domestic political issues. Romney, meanwhile, has called Russia the U.S.'s greatest political "enemy" -- and later changing that description to "foe" -- because he senses a potential weakness in an Obama foreign policy that has otherwise produced several notable successes.
It would be much simpler, politically, if supporters of graduating Russia from Jackson-Vanik could cast it as a vote for American business, as Secretary of State Hillary Clinton did in a recent opinion piece. But they can't. Passage is complicated by the Magnitsky bill, human rights legislation that targets government officials involved in the case of Sergei Magnitsky, a Russian lawyer who died in police custody in 2009. Largely viewed as a replacement for Jackson-Vanik, the stated aim of the bill is to deny visas to corrupt officials, freeze any U.S. accounts they have, and publish their names. The reality is that the Obama administration last summer instituted its own visa ban and any potential offenders have long ago transferred any funds from the U.S.. The net effect of the bill, therefore, is the "naming of names," which would represent a significant embarrassment to the Putin regime. The bill enjoys broad bipartisan support, with a number of lawmakers stating publicly that passage of the Magnitsky bill is a prerequisite for their vote on Jackson-Vanik.
The Obama administration has sent contradictory messages about its support for the Magnitsky bill. While originally opposing the bill, the administration seems to have accepted the inevitable and has been working with its primary author, Democratic Sen. Ben Cardin of Maryland. One recent Senate version provides for the public list as well as a confidential annex, which would largely allow the administration to circumvent the thrust of the bill by invoking national security exemptions. This is strongly opposed by a number of senior lawmakers, including Sen. John McCain, who was a co-sponsor of the effort to repeal Jackson-Vanik on the caveat of corresponding passage of the Magnitsky bill.
As the August recess rapidly approaches, the window for graduating Russia from Jackson-Vanik prior to its WTO accession closes. Obama appears to have little room to maneuver in expending political capital on the matter without raising the risk of elevating Russia-and its collateral baggage including Syria, Georgia, Iran, and domestic protests-to a legitimate campaign issue. Unless Congress moves forward on its own prerogative-which appears unlikely-the repeal of Jackson-Vanik won't get passed before November, or later, leaving the world's largest economy unable to take advantage of the accession of the WTO's newest member.
Carroll Colley is the director of Eurasia Group’s Eurasia practice.
By Carsten Nickel
Since the onset of Europe's crisis, Angela Merkel's step-by-step approach to managing reform of the eurozone has attracted much criticism, and her government's resistance to a systemic solution to the crisis has clearly failed to calm markets. For now, no one with real political influence in Berlin is willing to consider any strategic "Plan B" that includes a Greek departure from the eurozone. But when it comes to Greece, Merkel's insistence on "looking no further ahead than the headlights allow us to see" might actually prove to be a blessing.
The risk is rising, but it's still premature to expect an imminent "Grexit" from the eurozone. Call it incrementalism or muddling through, but we might be set for many months of more of the same. It's simply too early to determine yet where Greece, Germany, and the eurozone are headed, in part because Merkel is more flexible and pragmatic than her government's seemingly relentless insistence on front-loaded austerity suggests.
If and when it becomes inevitable, the Germans will offer concessions to keep Greece in the club. As a measure of Merkel's flexibility, consider how many agenda items now under discussion appeared to have been ruled out months ago: Talk of a European growth agenda will launch at the Brussels summit in late May, and the Bundesbank has now hinted that it could accept a German inflation rate slightly higher than the eurozone average as part of a macroeconomic adjustment process. Once Greek elections are behind us, Germany might well offer concessions on the timing of the Greek bail-out program.
Berlin calculates that a combination of eleventh-hour German flexibility and rising Greek fear of the potentially catastrophic consequences of Euro exit will persuade Greek voters to back a government that will accept the central German demand: That European financial help will continue to depend on Greece's willingness to push forward with structural (and painful) reforms.
Think of it as a political trade-off in German politics: To win domestic support for further assistance to southern Europe, Merkel needs assurance from other governments that structural reforms will move forward, assuring German voters that future crises are much less likely. With that reassurance, there is room for Merkel to compromise, even on important details.
Making things easier, Merkel's support within Germany remains strong. Foreign press and the opposition have cast recent local election losses for Merkel's Christian Democrats as a protest against her management of the eurozone crisis. But a hugely popular regional prime minister and the rise of the Pirate Party had much more to do with these results than anything to do with the euro, and members of Merkel's party are still prepared to accept compromise as the outcome of European negotiations. She remains the most popular politician in Germany, and despite public outrage over Mediterranean profligacy, there is still no German majority calling for the Greeks to leave.
None of this can keep Greece in the eurozone forever. Greece's future will be decided by Greeks. But Germans don't believe that an imminent Greek exit is inevitable -- and neither should we.
Carsten Nickel is an analyst in Eurasia Group's Europe practice.
By Alexander Kliment
Russian President Vladimir Putin's last minute decision to skip a G8 summit with President Barack Obama is a snub to Washington, but the Russian president's no-show may in fact increase the chances for a constructive relationship between the two countries.
Last week, just days after his inauguration, Putin let it be known that he would not attend the upcoming G8 summit at Camp David, where he and Obama were set for a one on one meeting.
The White House, in turn, said Obama wouldn't attend the 2012 Asia Pacific Economic Conference (APEC) summit this fall in Vladivostok, Russia -- though it was always hard to imagine Obama skipping the Democratic National Convention.
According to the Kremlin's official explanation, Putin can't leave Russia right now because approving the cabinet nominations submitted to him by Prime Minister Dmitry Medvedev is too sensitive a task for Putin to oversee by phone from Maryland. So Medvedev will send the list to Putin and head to the summit himself.
Putin's decision is a breach of G8 protocol, which expects that sitting heads of state will attend the group's summits. French President Francois Hollande, for example, will attend, just days after his 15 May inauguration. And by sending his number two to an organization in which Russia is already something of a second fiddle, Putin is raising questions about the wisdom of keeping Russia in the group at all.
Accordingly, many analysts have cast the move as a brazen rebuke to the U.S., which Putin alleges is behind the unprecedented street protests that have become a feature of Moscow life since last December.
It's true that the Kremlin's official explanation isn't wholly credible. Most cabinet decisions have likely been agreed upon already, Putin's re-election was never in doubt, and the G8 summit's date has been known for some time. That said, he reassumes the presidency amid rising popular opposition, which has sowed fresh doubts about his legitimacy. Keen to prevent infighting or, worse, insubordination among Russia's powerful elites, Putin could well be preoccupied with some last minute horse-trading at home.
The timing may, in fact, be no better in Washington than it is in Moscow.
Obama is entering a challenging re-election campaign in which he has already drawn fire from his Republican opponent Mitt Romney about the pursuit of a reset with Russia and his broader foreign policy track record. U.S.-Russia ties have deteriorated recently -- on account of disagreements over Syria, continuing friction over missile defense, and Putin's allegations of U.S. complicity in the protest movement -- meaning the U.S. president would be under pressure to take a hard line with Putin.
But that could risk an unpredictable flare-up with the notoriously sharp-tongued and pugnacious Putin. At the very least, it might complicate White House attempts to secure congressional support for granting Russia normal trade relations status so that U.S. companies can benefit from Russia's WTO accession.
In short, with both men facing heightened domestic concerns and pressures, Obama's meeting with Medvedev, who has warmer relations with Obama and who is seen chiefly as a messenger for Putin, carries much less political significance, but also much lower political risk. The practical result is that it leaves open the chance of greater flexibility between Washington and Moscow that could help maintain a pragmatic relationship in the medium term.
Alexander Kliment is an analyst with Eurasia Group's Eurasia practice.
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By Ayham Kamel
It may be tempting to view the plethora of recent gatherings -- the Arab League summit, the U.S.-Gulf Cooperation Council Strategic Cooperation Forum, and the Friends of Syria conference -- as evidence that the global community is getting more serious about addressing the violence in Syria. But the summits really just exposed the rifts among the relevant players that will prevent a viable and coordinated response. Syrian President Bashar al Assad, in turn, will profit from the lack of coherence; he will only nominally entertain Kofi Annan's peace plan as he maintains his grip on power, and the bloodshed will worsen.
International powers remain hesitant regarding any form of direct intervention. They considered initiatives calling for buffer or humanitarian zones, but ultimately no country seems prepared to act. Key powers appear to be pursuing their distinct policies, with only a hint of coordination.
Saudi Arabia and Qatar will provide extensive support -- including arms -- to the Syrian opposition, but are unlikely to supply the heavy arms that would lead to an immediate change in the balance of power. Heavy arms are more difficult to smuggle and training rebels would be much more challenging than during the Libyan conflict. Moreover, the escalation could provoke an un-calculated response from Assad's military. While their interests differ, the two powers see Assad's survival as a threat to their influence. Riyadh's purpose is to limit Iran's regional influence. Meanwhile, Doha has invested significant diplomatic and political capital in the struggle against Assad and any failure to deliver would represent a tangible setback to its prestige. Behind the armament policy is also a deep concern that if Assad regains control, Damascus and Tehran would aim to destabilize the al Saud and al Thani ruling families' grip on power.
Arming the rebels, who have had trouble obtaining ammunition sine the regime began its extensive military campaign in early February, will provide much needed psychological support and will help weaken Assad's forces. While the resolve of Syria's opposition will not abate, arms from the Gulf will neither arrive overnight nor will they immediately change the balance of military power, which is still heavily tilted in the regime's favor. An equally important element of the Gulf strategy is providing monetary incentives to officers in the Syrian army to incite defections. But Assad has built multiple safeguards to prevent defections, a tactic he inherited from his father.
The U.S. is willing to overlook, perhaps even support, GCC efforts to weaken Assad. But Washington is definitely not interested in playing an active role. It is concerned about Saudi Arabia's and Lebanon's support of Salafist rebels and al Qaeda leader Ayman al Zawahiri's call for jihad in Syria. While Sunni monarchies in the Gulf benefit from rising sectarianism in Syria, the U.S. interest in long-term regional stability could be compromised if the Sunni-Shia confrontations spread to Iraq and other countries. U.S. officials believe that a political settlement will be needed to prevent prolonged instability. Verbal support for the Annan process is a reflection of the desire to keep negotiations open, but U.S. officials are convinced that under current conditions the Annan plan will only enable Assad to retain power.
Assad will probably not implement key elements of the Annan peace plan, which calls for a halt of hostilities from all sides, and a negotiated settlement between the regime and the opposition. The regime views cooperation with the UN envoy as a way to secure the successes achieved by its military strategy and to gain some breathing space. While Annan is a shrewd diplomat, there are few reasons to think that success is in reach. Syria's opposition will probably not negotiate with Assad or agree to a settlement that keeps him in power. Meanwhile, there are no indications that the Lion of Damascus has reached a point where he would accept his own ouster.
Ayham Kamel is an analyst in Eurasia Group's Middle East and North Africa practice.
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By Emily Hoch
On Monday, as locals flock to successive showings of Contagion, the United Nations General Assembly will meet in New York for its second ever high-level meeting on health, on the comparably mundane topic of non-communicable diseases (NCDs): heart and chronic respiratory disease, diabetes, and cancer, among others. With all the high-drama causes out there, it might seem odd that the U.N. is focusing its attention on what are typically considered codas to the lives of the rich and the elderly. But NCDs have become a universal threat. They kill three in five people a year, and 80 percent of the victims in 2011 will live in developing countries. Roughly a third will be younger than 60. Even larger numbers of people are living disabled by these illnesses.
As such, low- and middle-income countries are facing what demographers call a double burden: Policymakers must balance prevention and treatment of diseases typical of the young and impoverished, such as diarrhea, pneumonia, and malaria, with stemming an NCD pandemic that the World Health Organization predicts will increase deaths by 15 percent by 2020. And despite the announcement today that Ely Lilly will donate $30 million to developing-country diabetes research, only 3 percent of all development assistance for health (worth a total of $22 billion) is dedicated to NCDs.
The only other U.N. General Assembly meeting on health was the 2001 session on HIV/AIDS, a turning point in the struggle to curtail that pandemic. Since 2001, billions of dollars have been spent on HIV/AIDS prevention and treatment, and almost every country includes an action plan for HIV/AIDS in their policy framework. The biggest achievement of the HIV meeting was the establishment of the Global Fund to Fight AIDS, Tuberculosis and Malaria, which has been lauded for reducing the human burden of these maladies while improving efficiency and country-level leadership.
A Declaration of Commitment on NCDs is likely this time around, too, and countries, activists, and corporations have found common ground on low-cost interventions. But real action is likely years away. While many in the global health community want to expand the Global Fund's mandate or to establish funds for other causes, neither of these options is likely. Experts have concurred that a new institution or funding pledge might distract cash-strapped governments from key tasks, such as strengthening overall health systems and regulating risk factors, including changes in the food and beverage industry. Instead, the United Nations will probably encourage member states to insert line-items for NCDs in their health budgets, develop national NCD plans, and take a strong stand on prevention.
Even there, the challenges will be considerable. In nearly every country, the sale and distribution of tobacco, alcohol, and unhealthy foods -- key risk factors for NCDs -- is big business. Governments dependent on tax revenue from the sale of these products may be hesitant to compel their citizens to change their lifestyles. China recently passed its first smoking ban, for example, but the state-owned China National Tobacco company generated $76 billion in taxes and profit for the country in 2010. Russia, the number three beer-consuming nation (after China and the United States), delayed any attempts at improving behavior by only recently classifying beer as alcoholic. And in Brazil, where 40 percent of the population is overweight and 10 percent is obese, the government has been accused of welcoming Nestle plants and micro-distribution networks that specialize in fatty and salty foods. So while the U.N. meeting next week is a significant step forward, as with losing weight, these changes will take years (if not decades) to implement.
Emily Hoch is an associate in Eurasia Group's global health practice.
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By Ian Bremmer and David Gordon
For the first time since the end of World War II, no country or bloc of countries has the political and economic leverage to drive an international agenda. The United States will continue to be the only truly global power, but it increasingly lacks the resources and domestic political capital to act as primary provider of global public goods. There are no ready alternatives to U.S. leadership. Europe is preoccupied with a multi-year bid to save the eurozone. Japan has complex political and economic problems of its own, and rising powers like China and India -- are too focused on managing the next stage in their development to take on new international responsibilities. We're referring to this new era as G-Zero, because that phrase captures the lack of international leadership at the heart of so many emerging political and economic challenges.
For a moment following the financial crisis, the G-20 looked like a forum in which the most influential developed and developing states could coordinate effectively on credible solutions to transnational problems. With so many more players at the table, there appeared to be a broader agenda and less room for agreement than with the G7, but members shared an overriding interest in the stability of the international system, and G-20 leaders were willing to work in concert to stabilize the global economy.
Yet, G-20 cooperation in 2008 and 2009 proved a short-lived collective reaction to panic, safety in numbers in the face of imminent disaster. The first indication it wouldn't last came in Copenhagen a year ago, following a climate summit marked by such disunity that the outcome was worse than if no meeting had taken place. Climate proved a sufficiently low-grade priority in the middle of a hard-fought global economic recovery that the frictions were largely forgotten. That's less the case with last fall's IMF meeting in Washington and G-20 meeting in Seoul, which ended with warnings of a global currency war and of a return to the national economic barriers of the 1930s. During both summits, the economic strategies of the world's leading economies were set in opposition to one another.
Why the G-Zero and not the formation of blocs that allow countries to pool their influence to get things done? Because the default policy response to a breakdown in global economic governance is every man/nation for himself. As demonstrated even in a politically integrated Europe, without adherence to common rules, there's no such thing as collective economic security. In the G-Zero, domestic constituencies will become increasingly effective in pushing populist agendas on trade, currency, and fiscal policy.
As geopolitics takes on an increasingly geo-economic hue, all the G-20 pledges to "avoid the mistakes of the past" will not prevent the G-Zero from taking hold and sparking other forms of conflict.
Next week, we'll dive deeper into the eurozone crisis, which takes the no. 2 slot on our list of top risks for 2011.
Ian Bremmer is president of Eurasia Group. David Gordon is the firm's head of research.
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By Ian Bremmer and David Gordon
We've now released our annual report on the ten most important political risks for 2011. Over the next two weeks, we'll be discussing each risk in more depth in this space. We begin with a brief overview.
In the past, our coverage of political risk has centered on particular countries, regions, issues, or events. We worry about elections in brittle countries and their ability to generate unrest, military confrontations involving unpredictable governments, or a policy shift with serious implications for a country's business climate and growth trajectory. For 2011, we're focused on a fundamental ongoing change in the global order.
As we step into 2011, headlines in the United States suggest a little more optimism about recovery, but market players and business decision-makers aren't convinced. Gold prices remain relatively high, and trillions of dollars that could be invested remains on the sidelines. Why the caution?
We're entering an entirely new world order with new ways for states to relate to one another, both politically and economically. That problem could provoke new areas of conflict, and it will highlight an emerging vacuum of power in international leadership -- and the uncertainty that comes with it.
We're calling this new order the G-Zero, because no country or bloc of countries has the political and economic leverage today to drive an international agenda. The G-20 helped build a useful crisis response when the financial crisis hit, but as the sense of urgency evaporated, so did the unity. The G7 is an anachronism. The G2 (the United States plus China) won't work, because the United States can't afford to keep up its role as primary provider of public goods, and China (like other emerging states) is much more interested in protecting domestic growth and stability than in accepting new burdens abroad. The G3 (the United States, Europe, and Japan) isn't viable, because Europe is shoulder deep in a bid to save the eurozone, and Japan's government is dysfunctional.
There's no international leadership, and each government will increasingly protect its gains at the expense of others. That's why the dominant economic trend of the last 50 years, globalization, now faces a direct challenge from geopolitics. Governments in both the developed and the developing world have every incentive to throw up barriers to commerce and investment that are designed to protect their own workers and companies -- and no country or bloc of countries has the will or the muscle to reverse this trend.
Our list of risks for 2011 includes the potential for crisis in Europe, tensions at the intersection of cybersecurity and geopolitics, China's unwillingness to bow to a growing surge of international pressure for economic policy changes, provocations from North Korea, and the risk of a spike in currency controls. All these risks are intensified by this transition to a G-Zero order.
Next up, we'll look at the G-Zero in greater depth, because it's our top risk for 2011.
Ian Bremmer is president of Eurasia Group. David Gordon is the firm's head of research.
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By Henry Hoyle
Last week, Jim O'Neill, head of Goldman Sachs Asset Management and a longtime China expert, made the bold claim that China's allowing the yuan to appreciate is part of a "grand bargain" with the United States to win support for enlarging Beijing's clout at the International Monetary Fund (IMF). (The yuan has gained about 3 percent against the dollar since June.) O'Neill's assertion echoes others who have argued that IMF governance reform should be made contingent on concessions from China to revalue its currency. The theory may be entertaining to discuss, but there's no real evidence of a quid-pro-quo here.
The United States has long supported giving China more power at the IMF -- even in the face of the yuan's painfully slow pace of revaluation. The United States backed China's bid to expand its influence at the IMF as early as 2006, and then did so again at the G-20 summits in 2009, when China was refusing to let its currency budge.
If a deal was indeed struck, as O'Neill claims, it raises a couple of questions. First, why would China abandon its longstanding refusal to negotiate the value of its currency? And second, why would Washington believe Beijing even if the Chinese promised to let the yuan rise? China has strengthened its currency this year only when foreign pressure was nearly over the boiling point, and even reversed appreciation when international attention temporarily dwindled over the summer.
To O'Neill's credit, the concept of a "grand bargain" did factor into the original U.S. rationale for backing IMF reform that favored China. According to what a senior Treasury Department official said in 2006, granting China more voting rights at the IMF would encourage Beijing to abide by international rules and accept best economic practices. But for the past few years, Chinese policymakers seem to have operated under the assumption that once China's economy grew large enough, the West would support the expansion of China's IMF voting rights regardless of whether they made concessions. In light of the IMF's recent decision to approve China as its third most powerful member, that assumption appears to have been correct.
If, despite all this evidence, O'Neill is still right, one thing is certain: The West certainly didn't strike a very good deal. China secured its expanded voting rights in the IMF without falling into line with international norms on currency rates, export subsidies, or market access. Calling the G-20 deal a grand bargain puts too positive a spin on it. We might as well call it a giveaway.Henry Hoyle is an associate in Eurasia Group's Asia practice.
By Wolfango Piccoli
Later this week, the European Council will press Turkey's government to reconsider
its refusal to give Greek Cypriot vessels access to its air and sea ports under
a customs union pact with the bloc. While this may cause some tension, Turkey's EU
membership talks won't be formally suspended or further complicated by tougher
measures. EU leaders are wary about aggravating tension and undermining
U.N.-sponsored peace talks between Turkish and Greek Cypriot communities aimed at
ending the island's 35-year partition. Plus, there's no need for the EU to take
more action against Ankara.
The process of accession negotiations has almost completely lost its momentum,
and it certainly won't get a jumpstart in 2010, given the adverse political
circumstances prevailing in both Turkey and the EU. If the
prevailing mutual disinterest between Turkey
and the EU persists, Ankara's accession talks
will inevitably run to a halt, raising the risk of a more definite split
and the EU next year.
The key issue for Turkey's EU bid is Cyprus, on which negotiations began in September 2008, but little progress has been made. If a settlement isn't reached by spring 2010, it could bring a total breakdown in Turkey-EU talks. While it's hard to trace a sense of urgency on the Greek Cypriot side, the April 2010 presidential elections in the self-proclaimed Turkish Republic of Northern Cyprus are generally regarded as an informal deadline for the reunification talks. Without a settlement, the present incumbent, Mehmet Ali Talat, may lose his seat in April and be replaced by a president who is less supportive of a settlement, which would further complicate the already thorny negotiations. Meanwhile, as long as the EU's commitment to accept Turkey remains ambiguous, it is difficult to see how Ankara could accept a settlement concerning the divided island.
Within Turkey, accession to
the EU is not a priority for the Justice and Development Party (AKP) leaders,
who are far more focused on their policy of expanding Turkey's foreign policy drive beyond Europe and
its traditional western allies to the Middle East, Russia,
and the Caucasus. This pursuit is aimed at
as a regional player, building on the country's location, Ottoman past, and
greater economic power. But this foreign policy course has minimal implications
Turkish government and AKP officials seem to share the belief that by casting Turkey as an aspiring powerbroker in its neighborhood, the country will obtain stronger leverage in its membership negotiations with the EU. Such a belief is deeply flawed as the EU will not cut Turkey any slack on reforms because of its strategic importance as a potential energy transit route and its growing diplomatic clout in its neighborhood. To make things worse, the EU is not seen any longer by the AKP leadership as a vote-winning card because the Turkish public has lost faith in the positive outcome of the accession talks.
Certain EU member states (notably France and Austria) can be equally blamed as they have undermined the EU's credibility by sending negative messages concerning the final outcome of the accession talks and by creating new obstacles that do not allow for the opening of various policy chapters. The acceptance by the other EU member states of these impositions (which are in violation of the EU's framework for negotiations with Turkey of October 2005) has exacerbated the damage. As a result, the EU has lost much of its leverage vis-à-vis Turkey, harming the functioning of the interplay of EU conditionality-Turkey compliance. Given the inability of the EU's 27 governments to reach a common position on Turkey, it is difficult to foresee how the EU could bring greater credibility to its formally existing commitment for Turkey's accession in case of successful completion of negotiations.
Unless Turkey's accession process receives an unexpected boost from the ongoing Cyprus negotiations, the AKP or the EU probably won't take any major step to re-galvanize Ankara's bid for membership. At the moment, both sides appear more concerned with keeping the process alive than moving it forward. In the longer run, the mutual estrangement between Turkey and the EU is set to send Turkey's EU bid into a slow death spiral, raising the risk of a more definitive split between the two sides.
Wolfango Piccoli is an analyst at Eurasia Group.
BULENT KILIC/AFP/Getty Images
By Ian Bremmer
Two years ago, there was a debate in Washington about whether a strong Europe or a weak
Europe was preferable. There's no disagreement today. A more multilateral U.S.
foreign policy needs a stronger Europe. As the G20 weakens the West's global
strategic position, the United States will increasingly need coherent policies from its
principal allies to maintain its international influence and leadership.
Europe, however, appears to be fragmenting.
Witness Germany moving away from EU fiscal targets, which will make it harder for the European Commission to compel other countries to develop credible and consistent fiscal policy. Meanwhile, European tax policy changes need to be implemented to cover the costs of interventions, stimulus packages, and revenue shortfalls-but they have barely begun. Upcoming elections in the United Kingdom could produce major ripple effects next year. And the risk of a complete breakdown in negotiations over Turkey's bid to join the EU could further divide the continent.
Overall, political issues will be tougher to deal with in 2010 than they were at the height of the economic crisis. As things unraveled in late 2008 to early 2009, governments had no choice but to use existing policy tools. Now they may have to take up the difficult task of developing new ones.
The European agenda next year will be full of challenges, many of which require policy coordination. There will be impediments to effectively managing a crisis in a truly pan-European bank; uncertainty over corporate refinancing, particularly in eastern Europe; and emerging political problems combined with social discontent as the difficult tasks of footing the bill for crisis responses become more pressing. At this point, a real move toward greater European consolidation looks like it's still a long way off.
Photo: ERIC FEFERBERG/AFP/Getty Images
The Call, from Ian Bremmer, uses cutting-edge political science to predict the political future -- and how it will shape the global economy.